California Court Upholds Arbitration Agreement

California courts are notoriously hostile to arbitration and zealously protective of workers' access to the courts. They regularly invalidate agreements that require employees or job applicants to arbitrate disputes. And the numerous procedural safeguards that California law requires can make arbitration nearly as complex, expensive and risky as taking a case to court.

But one California appellate court threw employment practitioners a curveball in April when it decided Roman v. Superior Court (Flo-Kem). The court upheld a very simple, pro-employer arbitration agreement and agreed to compel an employee to engage in arbitration rather than taking her dispute to court.

"It's unusual for arbitration agreements to be enforced at all," says Robin Weideman, a partner at Carlton, DiSante, Freudenberger. "California courts have set numerous hurdles to enforceability. Roman is an aberration."

But whether the decision is a sign of good things to come for employers or just a one-time fluke remains to be seen.

Less is More

The Roman decision arose from a disability discrimination lawsuit. The plaintiff, Gabriela Roman, worked as a receptionist at janitorial supply company Flo-Kem Inc. from 1997 to 2007. In February 2007 she took a medical leave of absence due to depression. Later that year she was fired. She sued the company, alleging failure to accommodate her disability and wrongful termination. After engaging in some initial discovery, the company filed a motion to compel Roman to submit the case to binding arbitration.

The basis for the company's contention that she was obligated to arbitrate her claims was a few sentences that appeared on the application Roman filled out when she first applied for a job at the company 10 years earlier. The application simply said, "I agree, in the event I am hired by the company, that all disputes and claims that might arise out of my employment with the company will be submitted to binding arbitration." It stated that the arbitration would be governed by American Arbitration Association rules.

Typically, such an agreement would be doomed. It broke almost every cardinal rule that employment lawyers advise their clients to follow when drafting an agreement. For instance, it was drafted in the first person, making it unclear whether the company was also bound to arbitrate disputes.

The agreement appeared to run afoul of the California Supreme Court's 2000 ruling in Armendariz v. Foundation Health Psychcare Services Inc., which requires numerous procedural safeguards for an arbitration agreement to be enforceable. For example, the agreement must provide for neutral arbitrators, the parties must be entitled to conduct discovery, the arbitrator must issue a written decision, the employee's remedies must not be limited, and the employer must bear the costs of arbitration.

"Under Armendariz, employment arbitration is really just a change of forum," says Greg Valenza, a partner at Shaw Valenza. "The more you try to change the substantive terms, the more likely your agreement will be invalidated."

Many appellate courts have relied on Armendariz to invalidate employers' arbitration agreements, and indeed, the court in Roman could have done so. Roman argued that the agreement didn't meet the Armendariz standards, and said it was unconscionable because it was one-sided and bound only the employee to arbitrate disputes. Moreover, Roman argued that Flo-Kem waived its right to compel arbitration by answering her complaint and engaging in discovery. Surprisingly, the court rejected all of Roman's arguments.

"There was a lot the court could have seized on to find the agreement unenforceable, but the court went out of its way to enforce it," Weideman says.

However, Weideman cautions that such a simple agreement may not often find such a sympathetic audience in California. "I wouldn't advise an employer to assume that this agreement would always work," she says. "Most courts would invalidate it."

Have Some Class

Even if an arbitration agreement overcomes the Armendariz barrier, there are numerous other hurdles to enforceability that make arbitration a dicey business in California.

Courts in the state recently have shown a great deal of concern with agreements that waive the right to bring class action claims. A pair of appellate decisions in March found that such arbitration agreements were "unconscionable."

In Franco v. Athens Disposal Co., California's 2nd District Court of Appeal articulated numerous concerns with arbitration agreements that require a waiver of class actions. For instance, the court found that an inability to pursue claims as a class would expose individual claimants to retaliation from their employer, and might stop employees from pursuing valid claims if the individual recovery would be small. A week later, the same district decided Sanchez v. Western Pizza Enterprises Inc., invalidating another arbitration agreement that involved a waiver of class claims.

"Numerous issues still make it hard to draft an arbitration agreement that is enforceable and addresses the employers' needs," Valenza says. "Employers have to know what they're buying in terms of procedures and discovery."